What is State Bank’s Raast and is It Working as it Was Supposed to?

In the tech space of Pakistan, the State Bank of Pakistan (SBP) has been lauded for the last few years for its futuristic approach, including its newly introduced digital payment system, Raast.

However, there is a hitch in the process of effective implementation of the system. The system appears to be efficient and impactful if properly implemented but that depends on how banks respond to the SBP’s call.

According to people’s experience so far, it is suggested that most banks have kept small limits for the Raast funds transfers. It means people have to transfer funds through the old Inter-Bank Funds Transfer (IBFT), which is not free, unlike Raast.

A source in the SBP has confirmed that the central bank was also been receiving complaints and it has told banks that they should also keep the Raast limits similar to the customer’s risk profile, i.e. IBFT limits.

The central bank has told banks to remove transactional limits on Raast with effect from April 1, 2022. However, SBP has allowed banks to set Raast transaction limits for their customers based on their risk profile in compliance with the relevant AML/CFT requirements.

The transaction limits for Raast payments should not be less than Rs. 200,000 per transaction or the transaction limits applicable as per the account type and prescribed by the SBP from time to time. The aggregate customer limit assigned to Raast payments should not be less than the Interbank Fund Transfer (IBFT) limit. Banks have also been asked to communicate their aggregate limits to the customers and available transaction limits should also be shown in their mobile apps and internet banking portals.

What are Banks Doing at Present?

In a case related to Raast, a bank allowed a customer to transfer Rs. 250,000 using IBFT, for which the bank charges a fee but the same user could not transfer more than Rs. 10,000 under free-of-cost Raast. Similarly, most banks are facing “technical issues” when performing Raast transactions while exhausting their daily limits for the same. On the other hand, IBFT transactions are working fine at the same time that Raast payments exhibit these “errors.”

“Banks ascertain a limit for individual customers on the basis of risk profile. However, we are receiving complaints that banks were keeping Raast limit for their customers lower than their ascertained risk profile so that they move to IBFT, where they charge a fee,” said a source privy to the matter.

What is Raast?

Raast has three phases and out of the three two have already been rolled out. One is Bulk Payments, which was launched on January 11, 2021. Examples of bulk payments are dividends, pensions, and salaries.

The second phase of Raast has also been rolled out, which enables instant Person-to-Person (P2P) fund transfers and settlement. The third phase, which is yet to be rolled out, will be Person-to-Merchant (P2M) for secure and easy payments at shops and retail outlets.

The SBP has asked banks not to assign a minimum transaction limit but they have been allowed to allocate appropriate upper transaction limits to their customers considering their risk profile, type of account, etc. without stifling their ability to make payments.

According to the SBP, Raast is Pakistan’s first instant payment system that will enable end-to-end digital payments among individuals, businesses, and government entities instantaneously.

Raast is expected to be used to settle small-value retail payments in real-time while at the same time providing cheap and universal access to all players in the financial industry including commercial banks, microfinance banks, government entities, and Fintechs (EMIs & PSPs).

Pakistan has had low electronic transactions for a number of reasons including low banking penetration, lack of trust and awareness of digital payment methods, limited interoperability, difficult accessibility, and high cost of transactions.

The Real-Time Gross Settlement System (RTGS) of Pakistan provides instant payment settlements for large value and corporate transactions only. Raast is expected to facilitate retail payment settlements with much greater efficiency.

Raast aims to address some key industry challenges within the payment ecosystem:

Limited interoperability: Financial institutions (i.e. the providers of digital payment services) have difficulty connecting to each other due to a lack of necessary central infrastructure.

High cost of digital payments to the end-user: End users are charged high fees for transferring money digitally, making digital payments inaccessible for a large portion of the population.

Poor user experience: End-users must go through a complex process to make digital payments and there are no digital modes of payment that are widely accepted by merchants.

Lack of security: Currently available digital payment types and infrastructure do not offer adequate data protection and authentication.

According to the central bank, the Raast features include:

Instantaneous payments: Near real-time digital payments for individuals, merchants, businesses, and government entities.

Low-to-no transaction costs for end-users: Raast is designed to operate at a cost-recovery model in order to make digital payments affordable to end-users of all socio-economic backgrounds.

Full sector-wide interoperability: Raast will allow all financial institutions to seamlessly connect to each other via a single link to the central infrastructure, making digital payments accessible across any channel to customers of any financial institution.

Customer-centric innovative products and services: Raast is built on cutting-edge technological standards, allowing financial institutions to develop innovative and user-friendly digital payment products and services (e.g. payment through phone number as RAAST ID).

Reliability and enhanced security: Raast uses more secure payment types, ensures that each transaction is authorized by the payer, and offers enhanced data protection and fraud detection services.

It is understood that Raast has just been launched and it is yet to evolve to address major issues of the general public. This article tries to find some major hitches people find in accepting Raast digital mode of payments.

What Does the Banking Industry Say About Raast?

“Yes, there must be a reluctance for banks but this happens with everything that could affect the revenue model,” said a seasoned banker on conditions of anonymity since he was not authorized to speak to the media.

“Raast is all set to attract new customers for banks and both financial and digital penetration in Pakistan, which would eventually turn in favor of banks as well,” the source added.

However, the fund transfer limit is not set by the central bank under Raast and it depends on individual banks.

“Please reach out to your bank regarding limits on Raast transactions,” says the State Bank in its frequently asked questions.

“All banks try to remain profitable, which is quite normal for a business entity,” said another banker, who also wanted to remain anonymous. “They will gradually move towards Raast and see how it serves them. If they see it was helping increase revenues and customers, then the appeal of short term profits would take the backseat.”

The source added that there was also a bit of difference between the two products. Raast has been launched for small-ticket payments while IBFT is used for high-ticket payments.

“But of course, banks need to increase the Raast limit so that the goal of financial and digital payment penetration is achieved,” he said. “However, we believe it will slowly evolve and gradually consensus would be reached. It has just started!”

What is State Bank Doing?

In 2020, the State Bank has advised banks to waive all charges for customers using their online fund transfer services including Intra and Interbank Fund Transfers (IBFT). The charges were re-instated last year but with a condition that allowed free transfers up to a certain limit.

“It has now been decided that Banks/MFBs/EMIs shall continue to provide free of cost IBFT services to their individual customers up to, at least, a minimum aggregate sending limit of Rs. 25,000 per month per account/wallet. Hence, individual customers of Banks/MFBs/EMIs shall continue to send out as many free IBFT transactions as long as they remain within their monthly limit of Rs. 25,000,” read a circular issued by the State Bank last year.

After the monthly limit of Rs. 25,000 is exhausted, banks have been allowed to charge their individual customers a transaction fee of 0.1 percent of the transaction amount or Rs. 200, whichever is lower.

“However, Banks/MFBs/EMIs are encouraged to provide free of cost IBFT services to their customers to promote adoption of digital payments in the country,” read the circular.

Meanwhile, it also introduced Raast last year. The upper limit for the Raast P2P model has been set at Rs. 200,000 per transaction or the transaction limits applicable as per the account type and prescribed by SBP from time to time. Banks have also been told not to restrict the number of transactions performed by their customers unless there are genuine frauds or concerns related to cyber security.

It has now told banks to keep the aggregate Raast limit of customers at par with their IBFT limit in a recent circular.

The banks have also been told to ensure that the user experience remains smooth with minimum hassle to encourage adoption. Banks are told to use more proactive and user-friendly measures instead of cumbersome techniques like requiring passwords received via multiple channels at the time of transaction.

In order to ensure smooth functioning of Raast services, State Bank has told banks to maintain sufficient liquidity in their Raast Settlement Account held with SBP, especially during weekends and long holidays, and conduct timely reconciliation between Raast and RTGS settlement accounts.

  • It’s too much to read for a common person ! Please explain in concise and in simple words.

  • This article appeared on another blog three weeks back. Content is similar and also the wordings. You have plagiarised that article.

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